Enron Style Train Wreck? Oregon PERS, SEC, DeFazio, Fortress, Railamerica

Just as Enron manipulated the power grid to create artificial profits, a private equity firm, Fortress, is now attempting the same game with key railroad infrastructure in the State of Oregon, and using Oregon Public Pension assets to do it. Oregon PERS invested an additional $125 million in Fortress in May 2007 (select May 2007 minutes), on top of $425 million already invested. Here are the details.

In a November 15, 2007 AP story involving RailAmerica U.S. Rep. Peter DeFazio, D-Ore., pictured above, reacted angrily to the company’s suggestion that taxpayer dollars be used to help reopen a short line railroad that runs from Eugene to the Oregon coast. DeFazio said the plan was outrageous, summing it up as “a group of super-rich hedge fund managers who are trying to extort the Port of Coos Bay and the people of Oregon for a few million, which to them (the hedge fund mangers) is chump change.” RailAmerica was purchased by Fortress Investment Management, the firm with which U.S. Presidential Candidate John Edwards has strong ties.

DeFazio said a better option is to force the company to sell the line. With the company’s assertion that the line loses $1.5 million per year, “we could make them pay us to take it,” DeFazio said, or seize the line through eminent domain. “These people clearly are not interested in providing a critical public service,” DeFazio said. “I don’t care how rich they are, how powerful they are. We can beat them.”

What DeFazio does not apparently realize is that the Oregon Public Pension system is a big investor in the private equity firm, Fortress, parent to RailAmerica. Given that state tax receipts are how the public pension system is funded, it seems somewhat ironic that Oregon PERS is investing in a firm that is crippling the competitiveness of key Oregon businesses. A better solution would be for Oregon PERS to purchase the line directly and have it managed by railroad professionals focused upon running a vital service rather than gouging users.

See related blog posts in the Oregon-PERS category.